Rating Rationale
December 01, 2023 | Mumbai
 
Indian Phosphate Limited
 
Rating Action
Total Bank Loan Facilities Rated Rs.132 Crore
Long Term Rating CRISIL BBB/Stable
Short Term Rating CRISIL A3+
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

 

Detailed Rationale

CRISIL Ratings' ratings on the bank loan facilities of Indian Phosphate Ltd (IPL; part of the IPL group) continue to reflect the extensive experience of the promoters of the IPL group and their funding support, and comfortable financial risk profile. These strengths are partially offset by exposure to fluctuations in the cost of LABSA and raw materials for single super phosphate (SSP) fertilisers (rock phosphate and sulfuric acid), and large working capital requirement.

 

Revenue improved to over Rs 889 crore in fiscal 2023 from Rs 684 crore in fiscal 2022, backed by steady demand for LABSA (linear alkyl benzene sulphonic acid) and increased production capacity amid continued government subsidy. Revenue is likely to remain at 5-8% over the medium term. Operating margin declined to 4.00% in fiscal 2023 from 6.4% in fiscal 2022 due to reduction in subsidy for fertiliser. Margin is expected to be 4-6% over the medium term.

 

The group has incurred capital expenditure (capex) of around Rs 50 crore for the next two fiscals to set up a sulfuric acid production unit as a backward integration initiative, and a fertiliser unit at Dhule (Maharashtra). The capex commended from the second quarter of fiscal 2024 and is debt-funded by around 60%. However, despite the capex, capital structure should remain comfortable over the medium term. Also, the capex is expected to ramp up operations and improve cost efficiency.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of IPL and Udaipur Poly Sacks Limited. This is because both these entities, together referred to as the IPL group, have a common management and financial and operational fungibilities, and are in the same business.

 

Unsecured loan (Rs 19.84 crore as on March 31, 2023) extended by the promoters has been treated as neither debt nor equity as the loan is subordinate to external debt and will remain in the business over the medium term.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Experienced promoters and their funding support: The promoters have more than 25 years of industry experience and have established healthy relationship with key customer, Hindustan Unilever Ltd. They have also set up a strong dealer network for sale of fertilisers across Rajasthan, Uttar Pradesh, Haryana, and Himachal Pradesh. Furthermore, the promoters have extended timely, need-based funds to aid the business.

 

The group manufactures LABSA and SSP, which account for around 75% and 25%, respectively, of total sales. This helps partially withstand any setback in a particular segment. Revenue grew about 30% on-year in fiscal 2023 on the back of healthy demand and commencement of the expanded capacity for LABSA. However, operating margin dipped due to lower subsidy in fertiliser and sizeable manufacturing of LABSA, which has a comparatively low margin.

 

  • Comfortable financial risk profile: Despite planned capex, financial risk profile should remain healthy owing to steady cash accrual and limited reliance on external debt. Networth was large at Rs 103 crore as on March 31, 2023, while gearing and total outside liabilities to tangible networth ratio were strong at 0.42 time and 0.93 time, respectively. Debt protection metrics were also robust, with interest coverage and net cash accrual to adjusted debt ratios of 8.7 times and 0.57 time, respectively, for fiscal 2023.

 

Weakness:

  • Exposure to fluctuations in the cost of LABSA and raw materials for SSP: Operating margin weakened to 4% in fiscal 2023 from 6.4% in fiscal 2022 due to lower subsidy in the SSP segment. Rise in the prices of LABSA and raw materials for SSP can impact profitability in case of time lag in passthrough. Higher generation of LABSA, which has a low margin vis-à-vis fertiliser, will weaken profitability over the medium term. Amount of government subsidy and its timely receipt remain critical.

 

  • Moderate working capital cycle due to receivables in the fertiliser segment: Gross current assets were 80 days as on March 31, 2023, due to receivables of 45 days and inventory of 22 days. Receivables level is high in the fertiliser segment, where 40-45% of the fertiliser cost is received as subsidy from the government after raising the bill. Any significant delay in receipt of subsidy can impact working capital management and liquidity.

Liquidity:  Adequate

Cash accrual is expected to be Rs 30 crore per annum against yearly debt obligation of Rs 5-7 crore, over the medium term; the surplus will help fund working capital requirement, thereby lowering dependence on external debt. The combined cash credit limit was utilised at ~70% during the six months through March 2023. Nonetheless, any stretch in subsidy payments or undertaking significantly large, debt-funded capex can weaken liquidity.

Outlook: Stable

The IPL group will continue to benefit from the extensive experience of its promoters.

Rating Sensitivity factors

Upward factors:

  • Steady improvement in operating performance, with margin remaining at over 6% on a consistent basis.
  • Sustenance of comfortable capital structure, debt protection metrics and surplus liquidity.

 

Downward factors: 

  • Lower-than-expected revenue growth and steep dip in operating profitability resulting in cash accrual of less than Rs 15 crore per fiscal.
  • Weakening of financial risk profile because of larger-than-anticipated, debt-funded capex or further stretch in working capital cycle.

About the Group

The IPL group is based in Umarda, Rajasthan, and is promoted by Mr S Pritam Singh, Mr Ravinder Singh and Mr Devendra Singh.

 

Established in 1998, IPL manufactures fertilisers and SSP (both granular and powdered), and also began making LABSA (one of the raw materials used in making detergent) from 2004.

 

Incorporated in 1995, UPSL has been manufacturing SSP since 2013. The company produced cement bags till 2016, but only makes SSP now.

Key Financial Indicators

As on / for the period ended March 31

 

2023#

2022

Operating income

Rs crore

889.24

684.19

Reported profit after tax

Rs crore

28.57

28.57

PAT margins

%

2.42

4.18

Adjusted Debt/Adjusted Net worth

Times

0.42

0.33

Interest coverage

Times

8.72

9.47

#Provisional

 

IPL

 

 

 

As on / for the period ended March 31

 

2023#

2022

Operating income

Rs crore

770.93

558.03

Reported profit after tax

Rs crore

16.50

16.33

PAT margins

%

2.14

2.93

Adjusted Debt/Adjusted Net worth

Times

0.23

0.36

Interest coverage

Times

6.75

9.51

#Provisional

 

UPSL

 

 

 

As on / for the period ended March 31

 

2023#

2022

Operating income

Rs crore

119.01

126.16

Reported profit after tax

Rs crore

5.50

12.24

PAT margins

%

4.54

9.70

Adjusted Debt/Adjusted Net worth

Times

1.10

0.29

Interest coverage

Times

9.51

9.54

#Provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of

Allotment

Coupon

Rate (%)

Maturity

Date

Issue Size

(Rs.Cr)

Complexity

Levels

Rating Assigned

with Outlook

NA

Bank Guarantee

NA

NA

NA

1

NA

CRISIL A3+

NA

Bank Guarantee

NA

NA

NA

1

NA

CRISIL A3+

NA

Cash Credit

NA

NA

NA

33

NA

CRISIL BBB/Stable

NA

Cash Credit

NA

NA

NA

15

NA

CRISIL BBB/Stable

NA

Letter of Credit

NA

NA

NA

20

NA

CRISIL A3+

NA

Letter of Credit

NA

NA

NA

25

NA

CRISIL A3+

NA

Proposed Cash Credit / Bills Discounting Limit

NA

NA

NA

2.12

NA

CRISIL BBB/Stable

NA

Term Loan

NA

NA

Mar-2027

1.96

NA

CRISIL BBB/Stable

NA

Term Loan

NA

NA

Mar-2025

3.92

NA

CRISIL BBB/Stable

NA

Term Loan

NA

NA

Mar-2025

29

NA

CRISIL BBB/Stable

 

Annexure - List of Entities Consolidated

Names of entities consolidated Extent of consolidation  Rationale for consolidation 
Indian Phosphate Ltd Homogenous approach Common management, same business, and financial and operational fungibility
Udaipur Poly Sacks Ltd Homogenous approach Common management, same business, and financial and operational fungibility
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 85.0 CRISIL BBB/Stable 05-10-23 CRISIL BBB/Stable 26-09-22 CRISIL BBB/Stable 11-06-21 CRISIL BBB-/Stable 31-10-20 CRISIL BBB-/Stable --
      -- 26-04-23 CRISIL BBB/Stable 07-09-22 CRISIL BBB/Stable 07-06-21 CRISIL BBB-/Stable   -- --
Non-Fund Based Facilities ST 47.0 CRISIL A3+ 05-10-23 CRISIL A3+ 26-09-22 CRISIL A3+ 11-06-21 CRISIL A3 31-10-20 CRISIL A3 --
      -- 26-04-23 CRISIL A3+ 07-09-22 CRISIL A3+ 07-06-21 CRISIL A3   -- --
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Bank Guarantee 1 Punjab National Bank CRISIL A3+
Bank Guarantee 1 Indian Overseas Bank CRISIL A3+
Cash Credit 33 Indian Overseas Bank CRISIL BBB/Stable
Cash Credit 15 Punjab National Bank CRISIL BBB/Stable
Letter of Credit 20 Indian Overseas Bank CRISIL A3+
Letter of Credit 25 Punjab National Bank CRISIL A3+
Proposed Cash Credit / Bills Discounting Limit 2.12 Not Applicable CRISIL BBB/Stable
Term Loan 1.96 Indian Overseas Bank CRISIL BBB/Stable
Term Loan 3.92 Indian Overseas Bank CRISIL BBB/Stable
Term Loan 29 Punjab National Bank CRISIL BBB/Stable
Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
Rating criteria for manufaturing and service sector companies
CRISILs Bank Loan Ratings - process, scale and default recognition
CRISILs Approach to Recognising Default
CRISILs Criteria for rating short term debt
CRISILs Criteria for Consolidation
Understanding CRISILs Ratings and Rating Scales

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